Converting to a Roth

In a blog last month, I wrote about Roth IRAs and promised a future blog regarding conversions from a traditional IRA to a Roth IRA.

As I explained in last month’s blog, with traditional IRAs and 401(k)s, the contributions to the accounts are deductible when made. The money in those accounts builds tax-deferred. On the other hand, contributions to a Roth IRA or a Roth 401(k) are not deductible when made. After the account exists for a few years, the distributions from the account are tax-free. Here is the critical difference between a traditional and a Roth account. A traditional account builds tax-deferred while a Roth account builds tax-free. Not only do the dividends, capital gains, and interest earned in the account build tax-free, when distributions are eventually made, they come out tax-free.

Such a conversion can have many advantages:

It can help bring additional income into lean years

It eliminates having to take minimum required distributions after age 70 ½

It increases the after-tax value of creditor-protected assets

It decreases the taxable estate by the income taxes paid

When you’ve converted funds into a Roth IRA, you continue to face early withdrawal penalties for withdrawals before age 59 ½. In addition, you could face taxes or penalties for withdrawals within five years of conversion.

But, a conversion to a Roth can be a wonderful planning strategy for income taxation, estate taxation, asset protection, and simplicity.

About Us

Explore Our Services

Keep in Touch

Terms of Use

By using the American Academy of Estate Planning Attorneys Member directory, you are agreeing to abide by the following Terms of Use. The AAEPA Member Directory may be used exclusively for the purposes of allowing consumers to locate an estate planning professional, or allowing other professionals to locate colleagues for co-counsel, consulting, or other professional assistance. Use for any commercial purpose, including solicitation of products or services is strictly prohibited. Persons who use the Member Directory for any unauthorized purpose may be subject to legal action. Any person who uses this site or its content for any commercial purposes will be liable to AAEPA for liquidated damages in the amount of $100,000, which represents a reasonable estimate of AAEPA's damages.